Third and fourth-tier cities are experiencing a boom in gold consumption, with 15 gold shops opening every 200 meters in some cities. How do you perceive this phenomenon? Do you have any plans to buy gold recently?

Is this normal? This could be due to the limited investment channels available to Chinese residents, as the stock market is often gloomy and funds frequently implode. In contrast, gold has the dual attributes of consumption and investment. Purchasing gold jewelry may not be very appropriate as an investment, but it does provide some psychological comfort of maintaining and possibly increasing value while buying luxury goods, which is a significant advantage.

“Has my pig’s trotter recently bought several pieces of gold jewelry?”

“I know that although gold jewelry looks good, because of processing fees, brand marketing costs, and other surcharges, it is much more expensive than gold. But in our custom, we buy ‘three golds,’ and no one buys pure gold!”

Necklace

A versatile basic piece that goes well with any style, and it looks extremely exquisite even though it’s small.

Earrings

When wearing relatively plain clothes, pairing them with brightly colored gold earrings can really make you stand out.

Bracelet

A gold bracelet holds its value quite well, with minimal brand surcharges, but it’s just too expensive!

I think buying gold jewelry is much better than buying luxury items like handbags!

The key is its liquidity!

A set of over 150 square meters, another set of over 130 square meters, the one in the north of Xiaoshan City sold for a higher price, while the other one is a bit remote and priced lower. The two sets sold for a total of over 6 million yuan, which helped recoup a significant portion of my gold business." Hu Guo explained that with over 6 million yuan in hand, he immediately invested in gold.

Did hoarding gold for this reason really absorb excess currency and create the current risk of “deflation”?

This inevitably brings to mind the history of the Ming Dynasty’s silver crisis and its path to decline:

I. Where did the early silver that saved the Ming Dynasty come from

Firstly, the rulers of the Ming Dynasty began to pay attention to silver mining, which greatly alleviated the problem of silver shortage in the Ming Dynasty.

The most important source of silver was the influx of silver from the Americas and Japan after the ban on maritime trade was lifted in the mid-Ming Dynasty. At its peak, silver from the Americas could flow into China at a rate of 1-2 million taels per year, and Japanese silver could flow in at a rate of over 3 million taels per year.

II. Reasons for the shortage of silver

China did not produce an abundance of silver, especially after the Xuande era of the Ming Dynasty, when the annual silver production in China showed a downward trend.

In the 16th century, the implementation of the “One Whip Law” in the northern regions led to a social crisis caused by a silver shortage. By the 17th century, a global silver crisis erupted, and countries, especially Japan, began to restrict silver exports.

Most fatally, the noble gentry of the Ming Dynasty were hoarding silver in large quantities, making it difficult for massive amounts of silver to enter the market .

In the Qing Dynasty, there was a historian named Zhao Yi, who wrote a book called “Twenty-Two Histories Notes.”

When discussing the corruption in the Ming Dynasty’s officialdom, Zhao Yi compiled a “Wealth Ranking of Corrupt Officials” and said that the wealth of these corrupt officials was “astounding.”

Eight people made the list, and five of them were eunuchs, which aligns with the law of “bribery follows power,” as the Ming Dynasty was the third dynasty after the Han and Tang dynasties in which eunuchs wielded power.

Eight people made the list, including five eunuchs:

Wang Zhen, the Chief Eunuch of the Zhengtong era, had immense power and was subjected to a posthumous property confiscation, resulting in the discovery of “more than 60 warehouses of gold and silver, hundreds of jade plates, and over twenty coral plants, each over six or seven feet tall.”

Li Guang of the Hongzhi era, when his property was confiscated, was found to have “thousands of stones of white and yellow rice.”

During the Zhengde era, Liu Jin’s corruption index was ten times that of Wang Zhen, and after his downfall, his property confiscation revealed “over 800,000 taels of gold, over 50 million taels of silver, and countless other treasures.”

Another Chief Eunuch of the Zhengde era, Qian Ning, had his property confiscated, revealing “over 100,000 taels of gold, 3,000 boxes of silver, and 2,500 bundles of jade belts.”

Learning from history, selling property to hoard gold may be even more dangerous than a real estate bubble .

Gold price hits a new high," “Gold price has risen above 600 yuan per gram,” “Will gold prices continue to rise in the future?”…

In the 2023 hot search rankings, topics related to gold consumption always dominate the top positions.

Recently, the gold price has been consistently high, and the year-end is the peak season for gold consumption.

Whether in major cities or third- and fourth-tier cities, gold consumption is a hot trend.

The high prosperity of the gold market is driven by both internal and external factors.

The ongoing external factors, such as the lingering pandemic and the turbulent international situation, stimulate demand for gold investment and consumption.

Internally, the upgrading of gold craftsmanship and the promotion of traditional and hard gold products have driven both quantity and price to rise. Coupled with the continuous increase in gold prices, gold jewelry is one of the few consumer categories that have shown counter-trend growth in the past three years.

There has long been a saying in the industry: “The world looks at China for jewelry, and China looks at Shuibei.”

Shuibei, located in Luohu, is the largest, most advanced, and most complete gold and jewelry gathering area in the country.

As the barometer of the gold market, Shuibei accounts for over 75% of the market share of China’s gold and jewelry market .

Data shows that within the core area of one square kilometer in the market, there are tens of thousands of gold and jewelry enterprises concentrated.

In Shuibei’s large gold and jewelry shopping malls, whether it’s small counters or well-known brands, consumers coming to buy gold are in a constant stream.

On several small counters of less than 20 square meters, over a dozen salespeople are busy.

“As the year-end approaches and the peak of weddings and marriages, coupled with this year’s continuously rising gold prices, we have many customers, both inquiring and making purchases.”

Internationally, as the inflation index drops, the February 2024 gold futures price, which is the most actively traded on the New York Commodities Exchange, rose $17.8 on the 22nd, closing at $2069.1 per ounce, with a gain of 0.87%.

Data released by the U.S. Department of Commerce on the 22nd showed that the Personal Consumption Expenditures (PCE) Price Index in the U.S. rose 2.6% year-on-year in November, below the market’s expected 2.8%; it fell 1% month-on-month, below the previous value and the expected 0%.

The lower-than-expected inflation rate has reinforced market expectations for the Federal Reserve’s interest rate cuts early next year, leading to a rise in gold prices.

As gold prices reach record highs, central banks worldwide are also “buying, buying, buying” gold.

The World Gold Council’s report on global gold demand trends for the third quarter shows that central banks worldwide continue to show a strong trend of buying gold, providing support for gold demand.

Data shows that in the third quarter, central banks worldwide net purchased 337 tons of gold, the third-highest quarterly net purchase of gold ever recorded;

Since the beginning of this year, central banks worldwide have purchased 800 tons of gold, setting a new record since the World Gold Council began keeping track of this data.

While central banks around the world are increasing their demand for gold to historic highs, the People’s Bank of China has also increased its gold reserves for the 13th consecutive month.

Data shows that as of the end of November, the gold reserves of China’s central bank reported 71.58 million ounces, an increase of 380,000 ounces month-on-month.

The continuous increase in gold holdings by central banks around the world is mainly due to three major reasons:

Firstly, gold has a relatively high hedging property and asset security;

Secondly, gold has always been a highly liquid asset, and it is currently the world’s second-largest highly liquid asset after the S&P 500 index;

Thirdly, the long-term average investment return rate of gold is quite considerable. Over the past 50 years, the annualized average return rate of gold investment has exceeded 7%.

With the looming uncertainty removed from the gold market, the overwhelming view in the market is bullish on gold.

Expectations for a short-term interest rate hike by the Federal Reserve have eased, and the market has already priced in rate cuts in advance, providing a more certain long-term upward trajectory for gold prices.

Looking ahead to 2024, the U.S. dollar, U.S. domestic interest rates, and central bank demand levels will be the main drivers of the gold market.

When I resigned from a state-owned enterprise, I had some money in hand. Most of my friends advised me to quickly buy a house. I asked why? My friend said, ‘Money left idle will depreciate. Everyone tells me that houses are essential. Every family needs one, and there’s no way it’ll go down in value. It will definitely appreciate, or at the very least, it’s a safeguard. Trust me, how can ordinary people outpace inflation? It’s all about houses!’

By the way, he works as a project manager in a third or fourth-tier city in his hometown. That year, I didn’t buy.

He bought two properties in his hometown, one fully paid and one with a loan, and also bought a loft in the provincial capital. He would always advise people to buy real estate.

This year, in November, I suddenly asked him about his properties. He was extremely frustrated and sighed. I asked, ‘What can you do now?’ He said, ‘What else can I do? Someone told me to buy gold. Gold is soaring now. Look, from ancient times to the present, gold has always been a solid currency. It doesn’t go down. Following this trend, it will surely appreciate, or at least, it’s a safeguard. Trust me, how can ordinary people outpace inflation? It’s all about gold!’

They always seem so willing to listen to someone, but who are they listening to? Various experts, platforms.

But there’s no way around it; information in third and fourth-tier cities is inherently unequal. Many people never feel that something can decrease until they hit a wall. And just how many investment channels do ordinary people have in China?

Their most basic idea is to preserve the hard-earned money they make. And they are the most susceptible to being fooled by certain people, taking one-sided information, especially in this age of monsters and demons.

You don’t need to explain too much about economic laws, data analysis, the difference in commodity naming, the difference in purchase and repurchase prices, or the differences in repurchase channels.

You only need to say one thing: It’s going up, it’s a safeguard, everyone is buying it, and they will be more eager than anyone else.

So, Chinese people are too simple, and there are too many so-called experts."

I wrote something, and the comments section attracted a bunch of supernatural beings. They started criticizing without even reading what I wrote. And bringing up the increase in gold prices from 2004 to now? What I said was never about not buying; it was about how to buy!

Ask yourselves, can ordinary people understand the gold content?

Do they understand what jewelry gold is?

Do they understand what investment gold is?

Do they understand what paper gold is?

Do they understand which price gold is repurchased at?

Do they understand how much those gold shop jewelry gold prices exceed the current market price after adding labor costs?

Do they understand how those door-to-door gold buyers use technology to shortchange you?

To the person talking about annual price increases, compare your statement with this one; are they the same concept?

I advise everyone, gold has a very low ability to hedge against inflation, gold is not a good store of value, and selling gold involves high transaction costs in the current fiat currency system. Gold is only linked to real interest rates in the United States, and in 2024, the United States is unlikely to significantly lower interest rates because inflation has not shown signs of subsiding; it’s just talk of rate cuts. If you want to achieve reasonable returns with gold at this stage, you can consider buying gold stocks.

China has a long and ancient history spanning over five thousand years. In this long history, many sayings have emerged from practical life experiences. One such saying goes: “Buy gold in troubled times, collect antiques in prosperous times.” What does this mean?

Let’s first look at the first part, “Buy gold in troubled times.”

In times of “troubled times,” it refers to turbulent and unstable periods. Zhuge Liang wrote in his “Memorial on Pacification”: “If I can preserve my life in troubled times, I won’t seek fame among the feudal lords.” In turbulent times, just surviving is considered quite good, so how can one dare to aspire to fame among the feudal lords?

Gold is a precious metal with the properties of a commodity. However, gold is different from ordinary commodities; it also possesses the characteristics of money—and it’s a widely accepted form of currency. Emperor Zhenzong of the Song Dynasty once said when encouraging people to study: “Within books, there are grains of gold; within books, there are golden houses; within books, there are faces as fair as jade.” Is there anything more enticing than gold, food, and beautiful women?

During times of war and chaos, there is a possibility of significant depreciation of various currencies, leading to the saying, “Money loses its value.” Only gold, with virtually no risk of significant devaluation, holds its value. Compared to copper coins and silver, it has the highest equivalence ratio. Moreover, due to its small volume, it is easy to store and carry. Hence, it became a “safe haven tool” purchased and collected by nobility, wealthy merchants, and magnates as an important part of asset allocation.

In ancient times, the total quantity of gold was limited. When nobility, wealthy merchants, and magnates tried to exchange their currency for gold or hoarded gold in large quantities, the price of gold would soar. This would stimulate more people to buy and hoard gold. This is the essence of “Buy gold in troubled times.”

Now, let’s continue with the second part, “Collect antiques in prosperous times.”

When troubled times come to an end and a prosperous era arrives, the economy and society tend to stabilize, and the price of gold stabilizes along with it. Since the price of gold becomes stable, the nobility, wealthy merchants, and magnates are no longer willing nor necessary to hoard large amounts of gold. They turn to invest in other profitable assets, such as antiques.

Like gold, antiques are also non-renewable and scarce resources. However, antiques come with the risk of depreciation and are fragile, making them unsuitable as collectibles during turbulent times. During prosperous times, as people’s material standards of living improve, they gradually acquire the means to collect antiques. This leads to an increase in demand for antiques, making them valuable for both collecting and investing.

In foreign countries, the enthusiasm for collecting antiques and cultural relics began after World War II. Among the world’s four major auction houses, Sotheby’s and Christie’s gained fame and fortune in the 1960s and 70s. China Guardian and Poly Auction, which primarily deal with Chinese cultural relics and art, rose to prominence later, mostly in the late 20th century and early 21st century.

In reality, the Chinese have had a long-standing passion for antiques because China is undoubtedly a great country of cultural relics, with a history spanning over five thousand years and a rich and profound cultural heritage. However, in the past, during times when people struggled to make ends meet, this deep interest in cultural relics could only be hidden within their hearts.

In recent years, as some Chinese have become wealthier, their wallets have grown thicker, and they have acquired substantial capital, they have started to collect antiques. The popularity of television programs like “Antiques Roadshow,” where renowned experts in the field appraise various antiques and evaluate their worth, has garnered a large and devoted viewership with high ratings.

This is the essence of “Collect antiques in prosperous times.”

Of course, humanity has long departed from the gold standard, and gold is no longer used as a medium of exchange. However, today’s Chinese people engage in the dual pursuits of collecting antiques and acquiring gold, both for their investment attributes. This is a reason to rejoice.

The stock market, real estate market, and the current gold and silver markets are all the same. When ordinary people rush to buy aggressively, it’s usually at its peak.

Furthermore, buying through gold shops is equivalent to paying very high commissions, as the price you pay is at least 20% higher than the market price. This is comparable to the 0.1% stamp duty in the stock market, and they still consider it high. You can imagine what 20% means. In reality, many people follow the trend and buy, but they end up just storing it, which also incurs losses because if you have 10,000 yuan in the bank, you can earn a few hundred yuan in interest each year.

Now, the economy is not doing well, and it’s hard to make money. If you have some savings, it’s best to use it to pay off your mortgage in advance or slightly improve your life, while saving the rest for unforeseen circumstances. Without the right investment logic, following the crowd and buying is usually a losing proposition.

Thanks for the invitation. If it weren’t for my compulsion to decline invitations, I wouldn’t even understand this kind of question.

But I can offer an explanation:

This doesn’t necessarily mean that ordinary people are wealthier now.

It’s more about the fact that even the poorest people used to deposit their money in banks, but now the interest rates can’t keep up with inflation. Gold is rising rapidly, and traditional notions of the gold standard are resurfacing.

So, in the end, it’s because people have less money in their hands, and that makes them anxious.

On one hand, the A-share market has been steadily declining, breaking below 2900 points. On the other hand, there’s confusion regarding the bonds mixed in bank wealth management products and concerns about potential high-risk local government bonds. Meanwhile, China’s real estate market is confirmed to be in a downward trend with both volume and prices falling. Additionally, in December of this year, banks have lowered deposit interest rates. With a lack of stable investment channels for wealth accumulation, many people are turning their attention to gold.

However, if the goal is both appreciation and preservation of wealth, it’s essential to understand the difference between gold jewelry (gilded gold) and pure gold. Those who have purchased gilded gold know that when you sell it back, you can only get market value for the gold content, which means you lose out on the craftsmanship cost. Gold jewelry typically comes with high handling fees, and some brands charge over 30% on top of the gold’s market value. When you buy a product with a 30% premium, it’s challenging to achieve your goal of preservation and appreciation.

When gold jewelry is sold for recycling, the price is generally about 30% lower than the market price, and sometimes it can’t even fetch the material cost. This is because, during the jewelry-making process, other metals like copper and silver are added to facilitate shaping. As a result, investing in gold jewelry can easily lead to a situation where you buy high and sell at a discount.

In fact, a recent incident in Anhui regarding the purchase of gold jewelry has gained widespread attention. A customer claimed to have purchased gold jewelry worth 16,000 yuan but decided to change the style shortly after returning home. However, they were told that they needed to pay a 35% depreciation fee, equivalent to 5,600 yuan.

This incident occurred at a real store in Anhui and wasn’t related to any internet-famous brand. A 35% depreciation fee indicates that, in the eyes of the jewelry seller, they are well aware that no one will take over the jewelry at 65% of the original price. After purchase, it devalues by 35%.

Currently, there’s an unfortunate trend in the media, constantly promoting the necessity for young people in third- and fourth-tier cities, especially young people, to buy gold jewelry. Recently, there was a trending topic on Zhihu (a Chinese Q&A platform) titled “Young People Are Obsessed with Buying Gold, Claiming that Gold Satisfies the Psychological Need to Both Spend and Save Money.” It seems like making vegetable vendors invest in A-shares and persuading young people in third- and fourth-tier cities to buy gold jewelry are important KPIs for media year-end evaluations.

However, compared to diamond jewelry, gold jewelry is relatively better for value preservation, especially considering that gold prices have been rising this year. According to a report from CCTV Finance, for decades, diamonds have been a darling of the luxury goods market, but over the past year, certified diamond prices have fallen by 35% to 40%.

In 2019, the Chinese Academy of Sciences successfully developed the technology for cultivating “synthetic diamonds” and piloted it in Henan. In just two years, Henan became the world’s largest diamond production base, accounting for nearly half of the global production. Compared to natural diamonds, Henan’s synthetic diamonds not only look genuine but also excel in quality. According to a 2021 report by Guosen Securities, in 2020, Chinese-made 3-6 carat diamonds reached the highest standards of D-grade color and VVVS-grade clarity.

According to Bain & Company, in just three years, China’s synthetic diamond production has grown to 4 million carats, with 47% of global diamond production coming from Henan. Simultaneously, the average international diamond price has dropped by 65%, marking the end of the era of “sky-high diamond prices.”

This shift has led young people this year to favor gold over diamonds when purchasing jewelry.

In conclusion, if you want to buy jewelry for personal adornment while minimizing depreciation losses, you may consider gold jewelry rather than diamond jewelry. However, if your perspective is oriented towards wealth preservation or appreciation, it’s crucial to understand the difference between gilded gold and pure gold.

Don’t make it sound like (buying gold) is some kind of low-level entertainment for farmer friends. At present, even if it’s popular, it’s not as popular as the central bank buying it. Using their own domestically produced red bills to acquire the coveted yellow goods everywhere. What a mind! What a transaction! Impressive!

Is this the logic behind the bustling gold consumption in Guangzhou, with nearly three or four gold shops within less than 200 meters on Beijing Road?

If you’re considering investing in physical gold, it’s better to buy gold bars directly. Gold jewelry, on the other hand, typically lacks significant investment value. The craftsmanship fees can be profitable when buying, but you might face a loss when selling. Of course, when it comes to weddings, buying gold jewelry is still a better value proposition compared to buying diamonds.

Whenever this phenomenon occurs, it’s a sign that investors are exiting the market. Individual investors are not the market makers. Take profits in a timely manner and secure your gains! When gold shops start popping up all over the streets, it’s actually the beginning of a saturation of the market with gold shops!

As a consumer, I want to emphasize once again that buying gold and buying gold jewelry are completely different! Buying gold generally refers to buying gold bars, which are sold based on the price of gold. However, the gold jewelry you buy from a gold shop is priced with an additional 20%-30% processing fee on top of the gold price. When you sell it later, you can only sell it based on the gold price. In other words, if a piece of gold jewelry from a well-known brand like Zhou Dasheng costs 600 yuan per gram, if you buy it and immediately sell it, you can only sell it for around 450 yuan per gram.

Behind the scenes, most of the bosses are from Beigao, Putian.

This year’s financial investments, it’s all about the rise in gold, hahaha.

Gold, compared to currency, tends to have a more stable value during wartime or in the aftermath of war.

A while ago, we stocked up quite a bit, but these days, we’re out of stock.

The current physical gold price is based on the Shanghai Gold Exchange price, which is 480 yuan/gram today. The craftsmanship fee varies from 7 to 50 yuan. Traditional styles generally range from 10 to 35 yuan. Enamel and cloisonné can go up to 50 yuan.

Those who can retail finished products in physical stores don’t have counterfeit goods. The processing quality depends on the integrity of the craftsmen.

A normal buyback price is around -5 to -10, so today’s calculated purchase price is in the range of 470-475.

As for what’s mentioned about 600+, it’s better not to pay for brand markups.

A flourishing era for antiques, a chaotic era for gold.

Gold is not only highly sought after in China but also extensively purchased abroad.

A major American retail chain, Kmart, recently stated that gold bars have become a compensation option for their online shopping. In the fiscal quarter ending on November 26th, the company sold over $100 million worth of gold bars.

The recent sensation in the market is a gold bar named “Fortuna” produced by a Swiss foundry. It was priced at $2069.99 per bar on the 15th, approximately 15000 Chinese Yuan. The supermarket claims that this gold bar usually sells out within hours of being placed on the shelves. Currently, the international gold price is at a high point, with the most active gold futures traded on the New York Mercantile Exchange at $2035.7 per troy ounce as of the 15th. JPMorgan believes that due to the possibility of the Federal Reserve starting to cut interest rates next year, gold will see a bullish trend in 2024.

Gold prices will continue to rise in the future, possibly reaching 1000 yuan per gram.

People have anticipated excessive currency issuance worldwide, as every government is expanding their money supply. Last year, China’s M2 money supply increased by approximately 60 trillion yuan, but the country’s GDP growth was only 6%, which is around 6 trillion yuan. This year is estimated to be similar.

Excessive currency issuance dilutes the value of your money. The way to counter it is to invest in products that are less likely to be diluted. Gold is both a commodity and a financial product. If, for example, the world increases its currency supply by 10% every year, your money will depreciate by at least 10% annually. The world cannot possibly mine 10% more gold every year, right?

So, buying more gold is a wise move, at least better than investing in real estate or stocks, which can be much more volatile.

Gold is a chicken that doesn’t lay eggs; you don’t want it, you can give it to me!